Reshaping the Swiss fund regulation approach
By Markus Fuchs – Switzerland’s fund and asset management industry is on the brink of major change resulting from the ongoing review of the Collective Investment Schemes Act, which sets out regulatory requirements for both traditional and alternative funds. The review covers asset management and distribution, which are particularly important for Switzerland, as well as depositary issues.
The draft legislation is currently in the consultation phase, and is under consideration by two committees of the Swiss parliament. The new law will most likely be approved by parliament in October and come into effect as of January 2013. The Swiss Funds Association has been invited to hearings of the parliamentary bodies and remains in regular contact with members, since amendments suggested by the Swiss fund and asset management industry can still be incorporated into the legislation.
The legislative moves are taking place against the backdrop of major developments across the Swiss financial industry as a whole. The private banking sector is currently under pressure from countries in Europe as well as the US, and changes in its business model may follow. In this environment, the asset management has the opportunity to strengthen its role as a pillar of the country’s financial industry, building on the expertise and infrastructure established through Switzerland’s leading position as a centre for wealth management.
The timing of the new legislation reflects the significant changes in the financial sector worldwide since 2007, with increased global focus on issues such as transparency and good governance, but especially the Alternative Investment Fund Managers’ Directive, which is due to be implemented by European Union member states by July 2013.
The directive will impose new requirements on managers from outside the union seeking to market alternative products to so-called sophisticated and professional investors within the EU, as well as on other aspects of the alternative fund value chain involving non-EU providers. One of the most important changes that will result in Switzerland is that in future Swiss-based managers of funds domiciled outside the country will be subject to supervision by the financial regulator, Finma, which has not been required up to now.
Ensuring future access to the broader European market is an important issue not only for existing Swiss-based managers but others currently based elsewhere that might be considering moving to the country. While attention up to now has largely focused on benefits to managers including an attractive tax environment and quality of life aspects, it is less remarked-upon that for many managers a large proportion of their clientele is based in or around Switzerland.
Ease of access to the large investor base within Switzerland – in total the country has USD2.7trn in assets under management for private clients and USD1.4trn in institutional money – is complemented by proximity to clients in neighbouring countries such as France and Germany.
The economic climate may improve, but the characteristics that make Switzerland attractive, including political and economic stability, effective supervision and regulation, strong and efficient financial markets and flexibility on taxation, will remain compelling in the future.
Managers whose business does not target Europe, for example involving Cayman-domiciled funds distributed in Asia or the Middle East, could welcome the opportunity not to be subject to the requirements of the AIFM Directive. That could be a key consideration if growth prospects are stronger outside Europe over the next few years.
Markus Fuchs is senior counsel with the Swiss Funds Association
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